Gold and US presidential elections

How has the price of gold reacted to US presidential elections?

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

Gold and US presidential elections [1968-2012] (1)

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the  average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Gold and US presidential elections [1968-2012] (2)

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Gold and US presidential elections [1968-2012] (3)

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

Gold and US presidential elections [1968-2012] (4)

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

Gold and US presidential elections [1968-2012] (5)

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

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Monthly seasonality of gold

On 17 March 1968 the system that fixed the price of gold at USD35.00 collapsed and the gold price was allowed to fluctuate. The following chart shows the dollar price of gold since that time.

Gold ($) [1968-2014]Monthly seasonality

The following chart shows the average returns by month of gold($) for the period 1968-2014.

Gold ($) month returns average [1968-2014]And the chart below has similar parameters but it shows the proportion of monthly returns that were positive for each month.

Gold ($) month returns positive [1968-2014]Observations:

  1. Gold($) has been strong in the months of February, September and November
  2. Gold($) has been weak in the months of March and October.

Since 1968 the month with the highest volatility has been January, while the lowest has been April.

 

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FTSE 100 Index (1984-2013) – price performance

To quickly recap a previous post, the FTSE 100 Index was launched in 1984 with a value of 1000 and closed 2013 at 6749. This is an increase of 575% over the 30 years, giving an annual growth of 6.57%.

Trendline

The following chart shows the price performance of the FTSE 100 Index 1984-2013. A simple linear trendline has been added.

FTSE 100 Index [1984-2013] with trendlineThe trendline calculates a value of 6695 for the end of 2013, which is just 54 points away from the actual value (less than 1% difference). As can be seen in the chart, the FTSE 100 Index is pretty much bang on its long-term (since 1984) trend.

Inflation-adjusted

The following chart plots the FTSE 100 Index against the real index (inflation-adjusted) for 1984-2013.

FTSE 100 inflation-adjusted [1984-2013]Inflation-adjusted the FTSE 100 Index closed 2013 at 2304 – an increase of 130.4% on the starting value 30 years ago, an average annual growth rate of 2.8%.

Comparison with S&P 500 and gold

The following chart plots the FTSE 100 Index against the S&P 500 Index and gold. The three series have been re-based to start at 100 for ease of comparison.

FTSE 100 v S&P 500 v GOLD [1984-2013]The above chart is not that useful as the S&P 500 Index and gold are both priced in dollars, so the following chart plots them in sterling terms against the FTSE 100 Index.

FTSE 100 v S&P 500(£) v GOLD(£) [1984-2013]

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